Make-or-Buy Decision

Matchless Technologies Company has been purchasing carrying cases for its portable tablets at a delivered cost of $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 44% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$24.00
Direct labor	17.00
Factory overhead (44% of direct labor)	7.48
Total cost per unit	$48.48

If Matchless Technologies Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 16% of the direct labor costs.

a. Prepare a differential analysis report for the make-or-buy decision. Enter your final answer as a positive amount if it represents a net cost savings; enter a negative amount if it represents an increase in cost.

MATCHLESS TECHNOLOGIES COMPANY
Manufacture Carrying Case
Differential Analysis Report
Purchase price of carrying case	___________	$
Differential cost to manufacture carrying case:
Direct materials	______________$
Direct labor	______________
Variable factory overhead ? (Cost increase) or (cost decrease ? $

b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? It would be advisable (continue buying or to manufacture) the carrying cases because the (additional costs or the cost saving) would be $ ______ per unit. Fixed factory overhead is (irrelevant or relevant) since it will continue (whether the carrying cases are purchased or manufactured) or (only if the carrying cases are purchased) or (only if the carrying cases are manufactured)